Thursday, July 7, 2011
Electricity users in California may be getting into the fire-insurance business soon. Private negotiations are under way for ratepayers to cover wildfire costs that insurance companies refuse to insure.
The very notion of power companies requiring their customers to pay for expenses insurance companies won’t cover after wildfires is "unprecedented and extraordinary." That's how a regulatory judge characterized it earlier this year when she urged dismissal of the request by San Diego Gas and Electric, Southern California Edison and Pacific Gas & Electric.
But there was a caveat: The judge allowed the utilities to file papers showing why their idea shouldn’t be scrapped. The power companies said dismissal would be premature. And as it turned out, the companies had already started closed-door negotiations with groups representing ratepayers to reach a settlement.
But foes of the proposal say any settlement requiring customers to shoulder wildfire costs instead of insurance companies is unconscionable.
“It is a public bailout," said attorney Mitch Wagner. "We are in the severest economic time since the Great Depression. People are struggling to make ends meet. You’ve got an application which is essentially a tax on all San Diegans to cover losses that a private corporation caused. They would, in effect, be burning San Diego for a second time ... first through the fires and then through a rate pass-through.”
Wagner sued SDG&E on behalf of some of the hundreds of people who lost their homes in the 2007 wildfires. The company’s lines ignited three major fires in 2007. State investigators said SDG&E did not properly maintain its lines.
The utility has paid out hundreds of millions of dollars to settle civil claims from the fires.
SDG&E did not respond to a request seeking comment. But in an interview last year, company spokeswoman Stephanie Donovan said since the 2007 fires, finding adequate insurance coverage at decent rates has been hard.
“We saw a six-fold (sic) increase in the amount of premiums for fire insurance last year," Donovan said. "That means what we had originally paid $5 million for, we’re now paying $44 million for. It’s just unheard of.”
Wagner, however, argued there would be no insurance crisis if SDG&E had implemented appropriate safety measures in 2007, before the catastrophic fires started.
”You know if you caused the fire yourself negligently and you burned down your next door neighbor’s house and you didn’t have enough insurance, you couldn’t go with your hand out for someone else to pay for the loss that you caused," Wagner said.
But Donovan said unlike insurance carriers, SDG&E has to provide electricity to all customers, even if they live in high-risk areas. She said she expected any costs beyond what insurance companies agree to cover would be split between company shareholders and customers. But the split proposed by the utilities was not close to 50-50.
What SDG&E and the state’s other power companies ultimately proposed was that they be allowed to recover from ratepayers costs up to $1.2 billion and 95 percent of costs beyond $1.2 billion. Shareholders would pick up the remaining 5 percent.
It’s unknown what kind of split the utilities are now proposing because negotiations are taking place in secret. Attorney Nicolas Sher, of the Consumer Protection and Safety Division, is part of those talks.
“Unfortunately, we are prohibited from disclosing what we discuss as our rules require that we keep settlement discussions confidential," Sher said.
The public will learn more once a settlement agreement has been reached.
The secret talks have left some, like Wagner, fuming.
“That’s a travesty," Wagner said. "It smacks of the CPUC abdicating its responsibility."
But Sher said he entered talks because he did not want to risk that the California Public Utilities Commission would approve the power companies’ proposal without protections for ratepayers.
“Just the fact that we are engaged in settlement negotiations doesn’t mean we are going to reach settlement. We are vehemently opposed to this application," Sher said.